One primary benefit of home ownership is building equity in the home. Equity is the difference between the value of the property currently and the balance on the mortgage loan. Increasing the equity of a home is an easy way to wealth which can be made available to any homeowner. Basically, you make your mortgage payments; the mortgage balance decreases as the value of the home increases. Especially in today's economy, many homeowners are asking how to build the equity in their homes.
Most homeowners believe that the only way to build equity is to pay off the loan, when actually this is just one of several ways to build your investment. There are two general ways to increase home equity. The first is to increase the home’s value. This involves making additions or improvements which will increase the overall value of the home. This could include adding a swimming pool or new siding. This is part of the reason why maintenance is needed to keep the home in its best condition.
The second way to build your investment is by decreasing the length of the mortgage, so there is not as much time for the home to age over the lifetime of the loan. This may involve having a shorter term mortgage loan, putting down a larger down payment or making extra payments on the loan. This approach is going to cost you more money up front, whereas the cost of the first approach will depend upon which improvements you choose to make.
A homeowner who cannot afford to pay more for a downpayment or toward the mortgage on a regular basis may decide to look at the first approach, which allows the spreading out of extra money over a longer period of time; in this case, you can plan to make improvements and additions when you have the cash available, rather than being tied into a higher monthly mortgage payment. Another homeowner may think that the extra work of home improvements is just too much and therefore the second approach is easier. The decision is all based upon what works the best for a homeowner, but both approaches will increase the equity in a home.
Some home improvements which may increase the equity in a home include:
- Remodeling the kitchen
- Remodeling the bathroom
- Adding an extra bathroom
- Updating the heating and cooling systems
- Finishing a basement
- Adding a deck
- Updating the windows and replacing any old doors
- Adding a fireplace
- Replacing any old doors
- Installing ceiling fans
- Adding environmentally friendly features such as solar panels
- Creating a new space, an example would be converting an attic to a bedroom
- Adding a manicured garden
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